The dominance of Asia in the world’s most expensive office locations continued, as Hong Kong-Central remained the highest priced market and three other Asian markets were in the top five. By contract, Bangkok became the cheapest office location in Asia Pacific despite the increase in average rents by 5.3% year-on-year for prime grade A CBD office buildings.
According to CBRE Global Research and Consulting’s semi-annual Prime Office Occupancy Costs survey.Hong Kong–Central’s overall occupancy costs of THB 6,539/sqm/month topped the “most expensive” list for the third consecutive time. London’s West End followed with total occupancy costs of THB 6,187.
Beijing’s Finance Street (THB 5,422), Beijing’s Jianguomen CBD (THB 5,200) and New Delhi’s Connaught Place CBD (THB 4,974) rounded out the top five.Other Asia Pacific markets in the top ten include Hong Kong-West Kowloon (6th) and Tokyo (Marunouchi/Otemachi) (8th). New York’s Midtown Manhattan (10th) returned to the top ten markets for the first time since early 2012, joined by Moscow (7th) and London’s City (9th).
Globally, occupancy costs rose by a scant 1.4% on a year-over-year basis as modest growth in the Americas and Asia Pacific was partly offset by a slight decrease in recessionary Europe. However, the modest global average uptick masked significant increases in markets like Jakarta, Indonesia and suburban Houston, Texas, which posted increases of 38.9% and 21.2%, respectively.“While the pace of occupancy cost growth globally has slowed, limited supply of prime space in key core business centres has fuelled continuous upward movement of occupancy costs,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. “The most expensive office markets often attract the regional headquarters of large multinational firms that require a prime location in a prestigious building with access to major global and regional transit routes.”CBRE tracks occupancy costs for prime office space in 127 markets around the globe. Of the top 50 “most expensive” markets, 21 are in Asia-Pacific, 18 are in EMEA and 11 in the Americas.
While comparisons in dollars are affected by currency exchange rates, annual percent change calculations are based upon occupancy costs in local currency and are not influenced by currency changes.
Out of the 127 cities surveyed, Bangkok was ranked at 115th (THB 842), 12 positions below Manila and 69 positions below Jakarta, becoming the cheapest in Asia Pacific. “Bangkok office rents increased for both grade A and grade B offices in CBD and non-CBD areas. The total amount of completed office space is 8.1million square metres and the total take up in Q1 2013 was 35,000 square metres.
Around 500,000 square metres of space is expected to be completed in all areas over the next three years. Almost half of this space will be owner occupied and there will be only two new CBD grade A buildings. Rents for prime buildings in Bangkok are going to continue to rise,” said Mr. Nithipat Tongpun, Executive Director – Head of Office Services at CBRE Thailand.Hong Kong Central’s position as the most expensive office market continues to be bolstered by its status as a leading global financial centre.
Although financial institutions have become more cost sensitive, with some considering relocating to less expensive space outside the CBD, high-quality and premium space is still sought after, especially by mainland Chinese firms which are increasingly setting up their offices in Hong Kong (Central) in prestigious buildings.Asia also had the markets with both the sharpest annual increase and decrease among the markets tracked. Jakarta’s 38.9% increase (THB 1,737 per square metre) was driven by a substantial recovery in domestic demand in the wake of Indonesian sovereign debt’s return to investment-grade status, which energized leveraged investment initiatives and drove up demand for prime office space across the capital.
Singapore experienced the largest annual decrease worldwide (-16.3%) due, in part, to increases in both new supply and the availability of lower-priced secondary space. The bulk of the rental decline occurred in early 2012, with only minimal rental corrections in the second half of 2012 and in Q1 2013.The most expensive market in the global ranking from the Pacific Region was Sydney (THB 3,314), which came in at 13th.
North America was again led by New York’s Midtown, which posted a prime office occupancy cost of THB 3,354, reflecting a 5.6% year-over-year increase. The New York Midtown market jumped to 10th globally, marking its first return to the top ten most expensive office locations since the beginning of 2012, reflecting continued demand for premium space by top tier investment and legal firms.Energy markets, such as Denver, Calgary and Houston, reported the strongest annual prime office occupancy gains, with Houston’s Suburban and Downtown office markets witnessing significant increases in year-over-year occupancy costs, of 21.2% and 14.9% respectively.
High-tech markets also saw rising costs, including San Francisco (Downtown), Boston (Downtown and Suburban), and Seattle (Downtown and Bellevue CBD). Prime costs in Boston’s Downtown surged, rising 15.4%. Across most of the fast-growing energy and high-tech markets, new supply is limited given the requirement of a high level of pre-leasing before any new construction can be financed.In Latin America, São Paulo remains the most expensive market, posting an office occupancy cost of THB 3,304, and ranks as the 14th most expensive market globally.
EUROPE MIDDLE EAST & AFRICA (EMEA)
In addition to London’s West End ranking as the world’s second-most expensive market, other markets from the region in the list’s top ten are Moscow (occupancy cost of THB 4,588) and London’s City (THB 3,695).Struggling economic conditions and cost-containment initiatives led to lower demand for office space and restrained pricing across many Southern European markets including Madrid, Milan, Rome, Athens and a number of smaller markets such as Valencia and Oporto.The cheapest city to rent an office, out of the 127 cities surveyed in June 2013, was Palma de Mallorca in Spain.